Economists are generally optimistic about the economy, but the public hasn’t hated it this much in more than a decade.\n<\/p>\n
If you’re downbeat about the economy and your personal finances, you’re far from alone: consumer sentiment fell to its lowest level since 2014 in January, according to a survey by The Conference Board.<\/p>\n
Yet the word “recession” has dropped from most economic forecasts as the economy has shrugged off disruptions from tariffs, the government shutdown, and a slowdown in the job market. In fact, the economy is on track to grow at a blistering 5.4% annualized rate in the fourth quarter, the fastest since the rebound from the pandemic recession, according to the Federal Reserve Bank of Atlanta’s GDP Now tracker.<\/p>\n
“Consumer sentiment has become unusually divorced from the macroeconomy since the pandemic,” Bernard Yaros, Lead US Economist at Oxford Economics, wrote in a commentary. “Understanding this disconnect is important because forecasters have historically looked to consumer surveys for additional useful information on consumption trends.”<\/p>\n
Why Economists Are Optimistic <\/p>\n
The main reason economists believe the economy is solid is that the main engine of economic growth\u2014consumer spending\u2014has stayed solid. Consumers as a whole have simply continued to spend as if there’s no tomorrow, despite all the economic upheaval.<\/p>\n<\/p>\n
Why It Doesn’t Feel Like The Economy Is So Great <\/p>\n
Take a look under the hood of that consumer spending, though, and a possible reason for the consumer pessimism stands out: people with high incomes are doing most of the buying, while lower- and middle-income households struggle to make ends meet.<\/p>\n
As this chart from the Federal Reserve Bank of Dallas shows, top earners account for a larger share of wealth, household income, and spending than they did a few decades ago.<\/p>\n<\/p>\n
Since the pandemic hit, inflation has eroded the buying power of paychecks for those whose wages haven’t kept up, hitting lower earners the hardest.\n<\/p>\n
GDP may tell people one thing about the health of the economy, but their bank statement at the end of each month tells a different story when the necessities of life keep getting more expensive. Before the pandemic, annual inflation was typically 2% or under, meeting the Federal Reserve’s target for price stability. That hasn’t been the case in more than four years.\n<\/p>\n<\/p>\n
Yaros flagged this sticker shock and the “long shadow” cast by post-pandemic price increases as a major reason for the disconnect between hard data and consumer sentiment in the University of Michigan’s widely watched poll on how people feel about the economy and their finances.\n<\/p>\n
Other factors, he said, are that reporting on economic news has become increasingly negative, and that more of those surveyed are Democrats, which reflects partisan judgments in the poll.<\/p>\n
The Letter Of the Day Is K <\/p>\n
All this adds up to what economists call a “K-shaped” economy after the shape of the graph depicting the trajectory of high earners versus those with typical incomes.\n<\/p>\n
Wealthier households own most of the stocks and have benefited most from the recent AI-driven stock market boom, while average households, more dependent on wages, see the financial situation deteriorating.\n<\/p>\n
Here’s what it looks like, as charted by economist Adam Tooze, a historian at Columbia University:<\/p>\n
Adam Tooze<\/p>\n","protected":false},"excerpt":{"rendered":"Economists are generally optimistic about the economy, but the public hasn’t hated it this much in more than…\n","protected":false},"author":2,"featured_media":438157,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[45,49,48,46],"class_list":{"0":"post-438156","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-ca","10":"tag-canada","11":"tag-economy"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/438156","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=438156"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/438156\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/438157"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=438156"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=438156"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=438156"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}